31. LO.4 (Accounting for by-product) Potato skins are generated as a by-product in making potato...

31. LO.4 (Accounting for by-product) Potato skins are generated as a by-product in making potato chips and frozen hash browns at Zeena Foods. The skins are sold to res- taurants for use in appetizers. Processing and disposal costs associated with by-product sales are $0.06 per pound of potato skins. During May 2010, Zeena Foods produced and sold 135,000 pounds of potato skins for $20,250. In addition, the joint cost for pro- ducing potato chips and hash browns was $82,000; separate costs of production were

$48,000. In May, 90 percent of all joint production was sold for $319,000. Nonfactory operating expenses for May were $47,850.

a. Prepare an income statement for Zeena Foods assuming that by-product sales are shown as Other Revenue and the processing and disposal costs for the by-product are shown as additional cost of goods sold of the joint products.

b. Prepare an income statement for Zeena Foods assuming that the net realizable value of the by-product is shown as Other Income.

c. Prepare an income statement for Zeena Foods assuming that the net realizable value of the by-product is subtracted from the joint cost of the main products.

d. Would the presentation in (a), (b), or (c) be most helpful to managers? Why?

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